Vivendi is in the middle of a major overhaul as it seeks to become more focused both operationally and geographically. Until recently, Vivendi’s strategic focus could be best described as unclear or disjointed. Did Vivendi want to be a media company (Canal+ Group, Universal Music Group (UMG), and Activision Blizzard) or a telecommunications company (Société Française de Radiotéléphone (SFR), Maroc Telecom, and Global Village Telecom (GVT))?
Recent moves, however, have had the dual benefit of paying off Vivendi’s debt, which stood at €13.4 billion as recently as year-end 2012, while simultaneously creating a more focused company.
· Spun out Activision Blizzard as an independently owned public company in September 2013 generating approximately $8.2 billion in cash while still retaining a 12% ownership stake, down from 63%.
· Sold its 53% stake in Maroc Telecom, the leading mobile, landline phone and Internet provider in Morocco to Etisalat in November 2013 for €4.2 billion.
· Pending regulatory approval, sold its stake in SFR, one of France's four mobile telecommunication companies as well as one of France’s largest Internet providers, to Numericable in April 2014 for €17.0 billion.
At the conclusion of these moves Vivendi was left with pay-TV programmer - Canal+ Group, the #1 record label - Universal Music Group (UMG), and Brazilian telecommunications company - GVT. According to Vivendi, once the SFR transaction closes and after paying off outstanding debt and paying shareholder dividends the company will have approximately €2.0 billion in cash on hand.
Seeking to further streamline itself as a media company and focusing more closely on Europe, Vivendi is seeking to swap GVT for a share of Telecom Italia. Simultaneously, Vivendi's pay-TV arm, Canal+ is reportedly seeking a majority stake in Italian programmer, Mediaset Premium.
Strengthening its content business by acquiring Mediaset Premium makes a tremendous amount of sense for Vivendi. A programmer like Mediaset Premium aligns well with Canal+, whereas Vivendi has struggled to find synergies between Canal+ and UMG, let alone its telecommunications properties.
As noted by my colleague Jason Blackwell, “service providers are seeking out valuable content, not running away from it.” Seeking to improve its content portfolio will pay dividends for Vivendi as service providers will go out of their way to get the best content but will shun content that doesn’t add value.
In addition, acquiring Mediaset Premium allows Vivendi to gain some geographic diversity while still retaining a core European focus. According to Vivendi, France currently accounts for about 60% of Canal+ business. Given France’s high unemployment, uncertain economy, and the impending launch of Netflix in France (and other European countries) becoming less Franco-centric is a sound strategy.
Divesting itself of GVT makes sense in light of Vivendi’s focus on becoming more of a media & entertainment company. GVT neither strengthens Vivendi’s content portfolio or geographic focus. Acquiring a stake in Telecom Italia, however, does not make much sense either strategically or tactically, unless Vivendi receives a significant cash payment as part of the equity swap that Vivendi can then use for additional acquisitions. If Vivendi is trying to influence Telecom Italia’s decisions to carry its programming they would be better off continuing to make themselves indispensable by improving their content portfolio.